Managerial Decisions and Long-Term Stock Price Performance

Abstract

A rapidly growing literature claims to reject the semi-strong form of the efficient market hypothesis by producing large estimates of long-term abnormal stock price performance subsequent to major corporate events. We re-examine three large samples of major managerial decisions, namely acquisitions, equity issues, and equity repurchases, and find little evidence of reliable long-term abnormal stock price performance for the three samples. The analysis shows (a) cross-sectional dependence of abnormal returns leads to inflated test statistics and (b) estimates of abnormal performance are small, and largely limited to small stocks, after accounting for the known mis-pricings of the model used to generate the results.

JEL Classification: G14, G31, G32, G34